Last Friday's Panic i.e. Friday April 17, 2015
I don’t usually watch what is happening in the market day to day or even week to week but last week I was sitting in a dental chair and the talking heads were frantic as the US market was down almost 300 points based on 30 stocks. To be fair, all the indices were down. Analyst after analyst came on to explain the reason or reasons why the big drop-Greece was about to default, the US market had been on a bull run for 6 years and a correction was past due, oil was down and on and on and on. Fortunately, I wasn’t in the chair long enough to really suffer from attempts of the “experts” to be clairvoyant and the hygienist did a good job.
When I got back to the office, I read a blog from Fred Taylor. Fred is a colleague and publishes some very savvy comments about investing. He has been around the block a couple of times so I always look forward to his writings. One of the items in the blog was a tennis analogy used by Charles D Ellis, author of “How to Win the Loser’s Game” between successful tennis players and successful investors.
Here a quote from Fred’s post; “He (Ellis) posits that only the "great" players can actually "win" a match -- and by that he means by consistently hitting winning shots. The rest of us (and this certainly includes yours truly, can "win" only by losing fewer times than our opponents -- in other words, committing fewer errors. His thesis in this regard is that investors become "winners" by not losing or committing "errors" or, in other words, you don't win by striking it rich with that big, spectacular investment, but by consistently losing less.”1
Here is my take on what Ellis is saying-You don’t have to know much about tennis to understand that if a player can avoid hitting the ball into the net and keep it in play, she is bound to win. Even the best players cannot do that every match which means even the best sometime lose. Put another way, to win you must stay in the game and sometime suffer loses.
That is no different from investing. Stock markets don’t have positive earnings every year. Historically, markets have an upward slope which means if you stay in the game, hold a globally diversified equity portfolio that is rebalanced back to your risk target allocation, you too can be a successful investor. Just don’t get out of the game. Sitting on the sidelines is a loser’s game.
1 Frederick C. Taylor CLU, CFP®, AIF®
"Your Wealth Coach" Marietta GA.